Saturday, February 16, 2008

Technical Analysis

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The last 2 weeks we had attempts to revisit the January 23, 2008 lows. Many traders, including me are still asking the question is this end of recession or we will see more down market. When you trade intraday charts, very often you fall under influence of the intraday sentiment. Especially now, when the market is still volatile and when you may see bigger then 2% runs within a single session.

This time I’m going to refer to the 2-year S&P 500 charts. I do it not to place a long-, or mid-term trade, but but I do it rather to calm myself down and to be sure that I use the correct strategy on the intraday basis.

S&p 500 chart

From the chart above I may see that this chart would point to the recovery.

I like that:

1. All my indicators are moving up. That would make me assume that I may see the continuation of the recovery.

2. Big green areas on the SBV, which would tell me that the market is heavily oversold.

3. Huge MVO, which would point to the huge volume surges of panic selling, which should lead to the shift in the supply/demand and trend reversal.

4. The MACD and Stochastics are moving up, which would tell the possibility that we already hit the bottom and are in the up-trend.

5. That S&P 500, DJI and NASDAQ 100 has simillar picture on all technical indicators I truck. It tells that the sentiment in all market sectors are the same.
I still do not like that:
1. VIX is at high level. It would be nice to see it moving lower, which would tell me that desperate panicers are moving out of the market.

2. At the same time I would like to see MVO=0 as well, which would point to the end of the sell off.
The biggest thing that I like about this chart is the amplitude of the recent volume surges. Each time after such huge volume surges we see the reversal. We had huge volume surge at the end of July – to the middle of the August 2007 (see volume surge #1 on the chart above). After that we had strong reversal. We had smaller by amplitude volume surge in the middle of November 2007 (see volume surge #2 on the chart above) and again we had strong 10% recovery on the S&P 500, NASDAQ 100 and DJI. Now we have the biggest by amplitude volume surge we have ever seen. That is the main reason why I expect for the strong recovery. After browsing in the history I see that each time the volume surge to the price downside pushes market higher later and I still did not see the reaction on the volume surge #3 (see the chart above).

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